Fed Chair: Housing Market Boom A “Passing Phenomenon”
Housing prices have soared due to increased demand, which Federal Reserve Chairman Jerome Powell believes is unsustainable. Here's why.
The boom in the U.S. housing market that caused a spike in demand and selling prices since the start of the coronavirus pandemic might be coming to an end. In a January 27 press conference, Federal Reserve Chairman Jerome Powell suggested the surge was unsustainable and likely to end soon.
“Some of the tightness in housing markets, which has led to the significant price increases this year, we think is a passing phenomenon,” Powell said.
“There was a lot of pent-up demand. There’s a one-time thing happening with people who are spending all of their time in their house. And they’re thinking either I need a bigger house, or I need another house, and a different house. Or a second house in some cases. So there’s a one-time shift in demand that we think will get satisfied, also that will call forth supply. And we think that those price increases are unlikely to be sustained for all of those reasons.”
You can read the full transcript of Powell’s remarks here.
His comments followed a record-breaking 2020 that saw 5.64 million homes sold, an increase of 5.6 percent from 2019, according to Zillow. Mortgage rates, which dropped to record lows last year during the height of the pandemic, have fluctuated in the first month of 2021. Lower rates, coupled with historically low inventory in houses for sale, have driven up prices.
The U.S. economy as a whole has shifted as the vaccine rollout continues. Gas prices have steadily increased since the start of the new year, and nationally are approaching pre-pandemic levels, according to the American Automobile Association (AAA). AAA spokesman Mark Jenkins attributes the uptick in gas prices and consumption to optimism about COVID-19 vaccines.
Powell said the Fed has been forced to use extraordinary policy to stabilize the economy. Experts differ on whether the housing market will “burst” in 2021. “The economy is a long way from our monetary policy and inflation goals, and it’s likely to take some time for substantial further progress to be achieved,” Powell said.
Zillow recently predicted its hottest and coldest housing markets for 2021. Austin, Tex. was forecast to have the largest surge followed by Phoenix, Nashville, Tampa and Denver. Conversely, New York City, San Francisco, Los Angeles, Philadelphia and Minneapolis were expected to have worse years than in 2020.
“These Sun Belt destinations are migration magnets thanks to relatively affordable, family-sized homes, booming economies and sunny weather,” Jeff Tucker of Zillow wrote. “Record-low mortgage rates and the increased demand for living space, coupled with a surge of Millennials buying their first homes, will keep the pressure on home prices there for the foreseeable future.”